[Federal Register Volume 74, Number 109 (Tuesday, June 9, 2009)]
[Notices]
[Pages 27361-27364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13395]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60022; File No. SR-FINRA-2009-031]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
the Reporting of Over-the-Counter Transactions in Equity Securities 
Executed Outside Normal Market Hours

June 1, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 8, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. On May 29, 
2009, FINRA filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA trade reporting rules relating to 
over-the-counter transactions in equity securities executed outside 
normal market hours to (1) require that any

[[Page 27362]]

trades executed during the hours that a FINRA Facility (the Alternative 
Display Facility (``ADF''), a Trade Reporting Facility (``TRF'') or the 
OTC Reporting Facility (``ORF'')) is closed be reported within 15 
minutes of the opening of the Facility, i.e., 8:15 a.m. Eastern Time; 
and (2) conform the trade reporting requirements applicable to 
``outside normal market hours'' transactions across FINRA Facilities.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA rules prescribe special requirements applicable to the 
reporting of trades executed outside normal market hours (i.e., trades 
executed outside the hours of 9:30 a.m. to 4 p.m. Eastern Time), and 
the rules distinguish between such trades that are executed during the 
hours a FINRA Facility is open and trades that are executed during the 
hours the facility is closed.\3\ Specifically, trades that are executed 
outside normal market hours and during the hours that the FINRA 
Facility to which the member is reporting is open must be reported 
within 90 seconds of execution.\4\ Thus, for example, a trade executed 
at 9 a.m. or a trade executed at 5 p.m. must be reported within 90 
seconds. Trades that are executed outside normal market hours and 
during the hours that the FINRA Facility is closed are not subject to 
90-second reporting, since the facility is not open to facilitate the 
reporting of the trade. Rather, such trades are reported as follows: 
(1) trades executed between midnight and 8 a.m. must be reported on 
trade date; and (2) trades executed between the close of the facility 
(i.e., either 6:30 p.m. or 8 p.m.) and midnight must be reported on an 
``as/of'' basis the following business day.\5\ ``Outside normal market 
hours'' trades are designated with a unique trade report modifier, as 
specified by FINRA.
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    \3\ The TRFs and ORF are open between 8 a.m. and 8 p.m. Eastern 
Time and the ADF is open between 8 a.m. and 6:30 p.m. Eastern Time.
    \4\ See Rules 6282(a)(2)(A); 6380A(a)(2)(A) and (B); 
6380B(a)(2)(A) and (B); and 6622(a)(3)(A) and (B).
    \5\ See Rules 6282(a)(2)(B); 6380A(a)(2)(C) and (D); 
6380B(a)(2)(C) and (D); and 6622(a)(3)(C).
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Proposed Amendments To Require Reporting Within 15 Minutes of Opening 
of Facility
    FINRA is proposing to amend the trade reporting rules \6\ to 
require that trades executed during the hours that the FINRA Facility 
is closed be reported within 15 minutes of the opening of the facility 
(i.e., 8:15 a.m. Eastern Time for all FINRA Facilities). Specifically, 
members would be required to report as follows: (1) trades executed 
between midnight and 8 a.m. must be reported by 8:15 a.m. on trade 
date, and (2) trades executed between the close of the FINRA Facility 
(i.e., either 6:30 p.m. or 8 p.m.) and midnight must be reported on an 
``as/of'' basis the following business day by 8:15 a.m. These trades 
would be designated with the unique trade report modifier to denote 
their execution outside normal market hours. Any such trades not 
reported by 8:15 a.m. would be marked with the ``outside normal market 
hours trade reported late'' modifier.
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    \6\ See Rules 6282(a)(2)(B); 6380A(a)(2)(C) and (D); 
6380B(a)(2)(C) and (D); and 6622(a)(3)(C).
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    FINRA believes that the proposed rule change will enhance market 
transparency by ensuring that these ``outside normal market hours'' 
trades are reported and disseminated closer to the actual execution 
time rather than reported at some later time during the trading day. As 
a result, market participants will have better information about the 
time of execution for such trades. For example, under current rules, a 
trade with the ``outside normal market hours'' modifier that is 
reported and disseminated at 9:20 a.m. could have been executed and 
reported real-time at 9:20 a.m., or it could have been executed at some 
point between midnight and the opening of the FINRA Facility at 8 a.m. 
There is currently nothing to distinguish a trade executed and reported 
at 9:20 a.m. from a trade executed between midnight and 8 a.m. and 
reported at 9:20 a.m. Under the proposed rule change, a trade executed 
between midnight and 8 a.m. that is reported at 9:20 a.m. would be 
marked late, thus distinguishing it from a trade executed and reported 
real-time at 9:20 a.m.
Proposed Conforming Amendments
    FINRA also is proposing certain amendments to conform the 
requirements for reporting ``outside normal market hours'' trades 
across FINRA Facilities. First, under current rules and system 
functionality, members are not permitted to submit to the FINRA/Nasdaq 
TRF and ORF a trade report with the ``outside normal market hours'' 
modifier during normal market hours. For example, if a member executes 
a trade at 9:29:00 a.m. and reports the trade at 9:30:15 a.m. (in 
compliance with the 90-second reporting requirement under FINRA rules), 
the FINRA/Nasdaq TRF and ORF will reject the trade report; the trade 
cannot be reported, and will not be disseminated, until after 4 p.m. By 
contrast, the ADF and FINRA/NYSE TRF permit the submission of trade 
reports with the ``outside normal market hours'' modifier throughout 
the day. Thus, the trade described in the example above can be reported 
to the ADF or FINRA/NYSE TRF and disseminated at 9:30:15 a.m.
    Accordingly, FINRA is proposing to amend Rules 6380A(a)(2)(A) and 
(a)(2)(C) relating to the FINRA/Nasdaq TRF and Rules 6622(a)(3)(A) and 
(a)(3)(C)(i) relating to the ORF to delete the requirement that 
``outside normal market hours'' transactions that are not reported by 
9:30 a.m. be reported after 4 p.m. This will enhance market 
transparency by eliminating systematically imposed delays in the 
reporting of ``outside normal market hours'' trades to the FINRA/Nasdaq 
TRF and ORF. The proposed amendments are identical to the text of 
current Rules 6282(a)(2)(A) and (a)(2)(B)(i) relating to the ADF.
    Additionally, FINRA is proposing conforming changes to Rules 
6380B(a)(2)(A) and (C) relating to the FINRA/NYSE TRF. Today, members 
submit trade reports with the ``outside normal market hours'' modifier 
to the FINRA/NYSE TRF throughout the day. However, when the rules for 
this TRF were originally adopted, these provisions inadvertently were 
based on the rules relating to the FINRA/Nasdaq TRF, rather than the 
ADF. Thus, the proposed amendments for the FINRA/NYSE TRF do not 
represent a departure from current member reporting practices and 
systems functionality.
    In this regard, FINRA also is proposing to amend Rules 
6380A(a)(2)(D), 6380B(a)(2)(D) and 6622(a)(3)(C)(ii) to require 
expressly that ``as/of'' reports submitted pursuant to

[[Page 27363]]

these provisions include the unique trade report modifier, as specified 
by FINRA, to denote their execution outside normal market hours. The 
proposed amendments conform to the text of current Rule 
6282(a)(2)(C)(ii).
    Second, FINRA is proposing to amend Rules 6282(a), 6380A(a), 
6380B(a) and 6622(a) to consolidate the provisions relating to late 
trade reporting and make clear the requirement that trades that are 
required to be reported on trade date, but are not reported on trade 
date, must be reported on an ``as/of'' basis on a subsequent date (T+N) 
and shall be designated as late. This requirement applies to trades 
executed during normal market hours, as well as those ``outside normal 
market hours'' trades that are required by rule to be reported on trade 
date (i.e., trades executed between midnight and 9:30 a.m. and between 
4 p.m. and the close of the Facility at either 6:30 or 8 p.m.). The 
proposed amendments also would make clear the requirement that 
``outside normal market hours'' trades that are required to be reported 
on an ``as/of'' basis the following business day (T+1), but are not 
reported T+1, must be reported on a subsequent date (T+N) and shall be 
designated as late.\7\ Accordingly, FINRA is proposing to amend Rules 
6380A(a)(2)(B), 6380B(a)(2)(B) and 6622(a)(3)(B) to delete the 
duplicative requirement that transactions not reported by 8:00 p.m. on 
trade date must be reported on an ``as/of'' basis the following 
business day (T+1).
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    \7\ FINRA is proposing to amend paragraph (a)(1) and adopt new 
paragraph (a)(6) of Rule 6282 to conform to Rules 6380A(a)(4), 
6380B(a)(4) and 6622(a)(5).
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    Third, FINRA is proposing certain technical, non-material changes 
to conform the text of the rules relating to the reporting of trades 
executed outside normal market hours across FINRA Facilities. For 
example, FINRA is proposing to amend Rule 6282(a)(2) relating to the 
ADF and Rule 6622(a)(3) relating to the ORF to delete the specific 
references to the ``.T'' trade report modifier. This conforms to the 
trade reporting rules relating to the TRFs, as well as the other 
provisions of the ADF trade reporting rules, which do not refer to 
specific trade report modifier labels.\8\ Additionally, FINRA is 
proposing to renumber the subparagraphs in Rule 6282(a)(2) relating to 
the ADF and Rule 6622(a)(3) relating to the ORF to conform to the 
numbering of the subparagraphs in Rules 6380A(a)(2) and 6380B(a)(2) 
relating to the TRFs.
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    \8\ See, e.g., Rules 6282(a)(4), 6380A(a)(2) and (5) and 
6380B(a)(2) and (5).
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    FINRA believes that by conforming the reporting requirements and 
systems functionality with respect to ``outside normal market hours'' 
trades across FINRA Facilities, the proposed rule change will promote 
more consistent trade reporting by members and a more complete and 
accurate audit trail.\9\
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    \9\ The Commission notes that in connection with these changes 
to the trade reporting rules FINRA is also moving language from Rule 
6282(a)(1) to Rule 6282(a)(6) concerning patterns or practices of 
late trade reporting. Rule 6282(a)(1) currently states that ``[a] 
pattern or practice of late trade reporting without exceptional 
circumstances shall be considered conduct inconsistent with high 
standards of commercial honor and just equitable principles of trade 
violation of Rule 2010.'' The change FINRA is proposing would 
replace the word ``shall'' with ``may,'' and applies the lower 
standard not only to a pattern or practice of late trade reporting 
outside of normal market hours, but to a pattern or practice of late 
trade reporting during normal market hours. Rule 6282 concerns 
transactions reported only to TRACS, and FINRA has told Commission 
staff that the change is to make the rule consistent with the FINRA/
NASDAQ, FINRA/NYSE, and OTC Trade Reporting Facilities, all of which 
currently have the identical language to proposed Rule 6282(a)(6). 
See telephone call between Stephanie Dumont, Senior Vice President 
and Director of Capital Markets Policy, FINRA, and Kathy England, 
Assistant Director, Commission, May 29, 2009. The Commission notes 
that it has routinely upheld appeals from FINRA disciplinary actions 
when FINRA has charged respondents with violations of Rule 2010 
(Standards of Commercial Honor and Principles of Trade) based solely 
on an underlying violation of another SRO rule. See e.g., Stephen J. 
Gluckman, 54 S.E.C. 175, 185 (1999), Exchange Act Release No. 41628 
(July 20, 1999).
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    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice. The effective date will be no earlier than 120 
days and no later than 180 days from the date of Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\10\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change will 
enhance market transparency and promote more consistent trade reporting 
by members and a more complete and accurate audit trail.
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    \10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-FINRA-2009-031 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2009-031. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than

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those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2009-031 and should be 
submitted on or before June 30, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13395 Filed 6-8-09; 8:45 am]
BILLING CODE 8010-01-P